Morning FX thoughts - 26 Jan '12

Westpac Global Markets Strategy Group

Thursday 26th January 2012 1 Comment

FOMC causes rebound. Until the US central bank’s meeting an hour ago, markets were on the back foot, weighed by renewed speculation Portugal will need another rescue package (an industry spokesperson suggested another EUR30bn), a mediocre US earnings season (Boeing countered yesterday morning’s Apple surprise), and weak US home sales.

The FOMC statement extended the expected period of zero interest rates from mid-2013 to at least late-2014, a dovish surprise to the market, other statement elements representing a more subtle dovish shift.

The S&P500 gained 0.9% on this to be up 0.4% currently, the Bernanke Q&A yet to come. The CRB commodities index is up 0.5%, oil +1.0%, copper +1.0% silver +3.6% and gold +2.2%.

US 10yr treasury yields were locked in a 2.03%-2.07% range until the FOMC helped it break sharply lower to 1.91%. Some European peripheral yields closed higher, Portugal’s 10yr +41bp, Greece +17bp and Italy +6bp.

The US dollar index plunged after the FOMC to a one-month low, forming a bearish outside day continuation pattern. EUR did the reverse, initially falling from 1.3052 to 1.2931 and then surging post-FOMC to 1.3104.

Germany’s business sentiment survey beat expectations. USD/JPY fell from 78.28 to 77.63. AUD outperformed in the wake of its modestly positive core CPI surprise, following the EUR initially lower from 1.0541 to 1.0445 and then up to 1.0594 – a 2 ½ month high.

NZD similarly fell from 0.8117 to 0.8041 and then rose to 0.8139. After surging from 1.2900 to 1.2990 post Australia’s CPI release, AUD/NZD extended gains to 1.3025 in London and NY.

AUD/USD and NZD/USD outlook next 24 hours: The FOMC Q&A will start shortly. Australia has a national holiday today, thinning local markets, but RBNZ’s OCR Review will attract global attention. We expect largely a ‘cut-and-paste’, with little market impact. AUD’s upward trend remains intact, the next upside target 1.0660. Similarly, NZD’s immediate overhead target is 0.8170.

Comments from our readers

On 26 January 2012 at 11:06 am Harry said:

It used to be that, when acronyms and the like were used in print, the writer spelled them out in full on each first use. Maybe you should remember that not all of your interested readers can recall what FOMC or OCR, for example, represent.